India’s trade deficit more than doubled in August to $28.68 billion as against $11.71 billion in the corresponding month of last year amid inflation and global geopolitical tensions. While sequentially it has moderated from a record high of $30 billion in July, it still remains unsustainably high, according to Barclays. Exports have weakened further in August to $33 billion, from the $40.1 billion and $36.3 billion registered in June and July, respectively, while stronger domestic demand kept the import bill elevated at $61.7 billion, though down from $66.3 billion in July, analysts at Barclays noted. “Though the August print marks a moderation from July’s record trade deficit of $30.0 billion, the deficit remains at unsustainably high levels, and is likely to raise financing concerns,” they said.
Faster domestic recovery keeps core import demand resilient
Exports fell by 1.1 per cent on-year, while imports grew by 36.8 per cent on-year. Barclays noted that the fall in exports continues to be driven by weakness in petroleum shipments, on which the government has imposed export restrictions, including a steep hike in windfall taxes that have reduced the incentive to export. “While relatively lower prices for crude oil reduced the petroleum import bill modestly amid rising inventories, the faster domestic recovery has kept core import demand resilient,” it added. Non-oil, non-gold and jewellery imports remained at $37.5 billion in August, led by higher imports of electronic goods. On the other hand, India’s core exports (non-oil, non-jewellery) showed an improvement in August, rising to $24.8 billion from $22.2 billion in July. “As a result, the core trade deficit fell to $12.7 billion in August from $17.4 billion in July,” it said.
Services trade activity continues to be robust
Services exports stood at $23.3bn in July, while services imports totalled $13.9bn. The overall services surplus fell to $9.3 billion in July from $9.5 billion in June. For the July- September quarter of the fiscal, Barclays’ current account deficit forecast was tracking around $45 billion, which would be the highest quarterly deficit on record.
With the trade deficit staying at uncomfortably elevated levels, Barclays acknowledged upside risk to its current account deficit forecasts, despite the recent fall in commodity prices. At present, it forecasts India’s current account deficit will rise to $115 billion (3.3% of GDP) in FY22-23, but the risks seem skewed toward a potentially larger deficit. “Some mitigating relief may come from falling commodity prices, but at present, the underlying risks point to the goods trade deficit being much larger than our expectation of USD265bn, which poses risks to our current account deficit forecast,” it said.